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TORONTO STAR 13th February 2003.

Court sides with doughnut sellers
Damage award set at $400,000 Country Style held partly at fault.

An Ontario court judge has awarded damages of $400,000 — an unusually high amount — to two Toronto owners of a Country Style Doughnut shop.

Justice Sandra Chapnik, of Ontario Superior Court, found that the doughnut shop chain, Country Style Food Services Inc., failed to act protect the two shop owners when the landlord of their East York location began construction beside it in 1999.

"When the ship began to sink, the franchisor (Country Style) left its charge afloat in turbulent waters,
without a life jacket," Justice Chapnik wrote with metaphorical flourish in her decision, released

"In response to the franchisees' initial desperation, and with a spasm of energy, Country Style did
extend a helping hand, but it failed to pull the floundering swimmer to safety," the judge wrote. "Due to its own tenacity, the franchisee managed to survive the flood and reach the shoreline. It was
however, left in a shivering state, vulnerable and uncertain about its future."

Country Style and the franchisee's landlord, an Ontario numbered company owned by developer
Howard Orfus, are jointly responsible for paying the damages, the judge ruled.

Country Style plans to appeal the judgement, the company's lawyer, Arnold Zweig, said yesterday.

Franchisees Marc Mesic and his brother-in-law Zeljko Vukovic are thrilled by the decision, their
lawyer said in an interview.

"This was a very important case to them," lawyer Wolfgang Kaufmann said. "They had a lot riding on
it and they feel very much that they have been vindicated by the court. I don't think there are too many cases where franchisees have been awarded these kind of damages."

The high damage award makes this case unusual, said Les Stewart, head of the advocacy group
Canadian Alliance of Franchise Operators.

"This is almost a U.S.-style award. I've never heard of this in Canada," he said, adding that some 5,000 franchise-related lawsuits are filed every year in Ontario.

Mesic and Vukovic bought the Country Style store on Overlea Blvd. for $300,000 in July, 1998. The landlord planned to build a shopping mall on the same property but the site plan showed that the
doughnut shop, and its drive-thru window, would be easily accessible from Thorncliffe Park Rd., a
busy, high-traffic street.

A year later, construction proceeded according to a different site plan and "without prior notice or
authorization," the judge wrote. "No mention was made by the landlord to either the franchisor or the
franchisee of the proposed new plans for the site."

The Thorncliffe Park entrance was blocked completely for four to six weeks and, ultimately, the
roadway to the restaurant was narrowed, hindering traffic and making the drive-thru lane difficult to

Country Style wrote to the landlord in July, 1999, and several occasions after that, demanding that the development proceed according to the original plan. But the chain never followed through on any of its threats to take legal action, the judge found.

"It appears that somehow the franchisor changed its position in mid-stream and decided to side with
the landlord," Justice Chapnik wrote. "The totality of the evidence propels the conclusion that Country Style turned its back on the franchisee when the latter needed it most. For whatever reason, it did not deal with its own franchisee in good faith."

Country Style initially sued the franchisees to collect some $219,000 it said it was owed in rent and
other fees. Mesic and Vukovic filed a counterclaim seeking $1 million in damages against Country
Style and the landlord.

Sales at the store, which had been climbing steadily, froze during the nine-month construction period,
and then saw a decline, the judge found. The store saw annual sales of $566,000 in 1999. That jumped to $600,800 in 2000, but then settled back to $558,500 the following year. At that level of sales, the store was barely able to break even, the franchisees argued.

Mesic and Vukovic no longer own the East York store, but Mesic still operates a Country Style
location in the city's west end near Pearson International Airport.

"Reprint Courtesy Toronto Star"


COURT FILE No.: 01-CV-219404CM2 DATE: 20030211
Before Madam Justice Sandra Chapnik

[72] I prefer the evidence of the defendants' expert, Richard Talbot, real estate consultant, to that of the other experts who testified at trial. Mr. Talbot gave his evidence in a more thorough, detailed and consistent manner. He viewed the site from a people-oriented perspective and discussed issues of visibility and access from the consumers or shoppers' point of view. Noting that the change in demographics and the tighter turn made it more difficult for large cars or trucks to manoeuvre, he termed the new configuration created by the back-to-back strip malls as "potentially dangerous" and the northwest corner of the mall as "chaos corner". The decrease in visibility to Country Style from the Thorncliffe entrance and the placement of the retail stores with their parking facilities combined to severely impede access to Country Style's drive-thru and restaurant from the Thorncliffe Park Drive entrance. The new configuration, he stated, "almost screens the access through the drive-in", making it less attractive for Country Style customers.

[73] Moreover, the detrimental effect of this was reflected in the sales records for the store. "I have never seen a sudden stop in sales at the end of the first year of operation and then go totally flat." After conducting a rolling 12-month sales analysis of the drive-thru and other Country Style sales at the Overlea location, he concluded that the construction carried out by the landlord "has had a significant negative impact on the growth of the Tenants' business both during and after construction. This impact was so severe that the Tenants were unable to make their location economically viable.

[74] Mr. Talbot's expertise in the area was self-evident. He presented as an able and knowledgeable witness. I accept his evidence and find in all the circumstances that the changes made to the site plan and then to the shopping centre mall had a serious detrimental effect on the defendants' business both during and after the construction phase.

(Richard D. B. Talbot is the President & Managing Director of Talbot Consultants International Inc. and was the retail expert witness for the franchisee in the above case. For more details on this and how we can help you, please contact us at info@talbotconsultants.com )


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